At G-20, is Obama sincere about open trade?

Bythe Monitor's Editorial BoardApril 1, 2009

A call by the G-20 summit for countries to keep their borders open to movement of goods and capital won't mean much if President Obama does otherwise.

The world has looked to the US for leadership in opening markets since 1945, when American officials cited protectionism as helping prolong the Depression and as a cause for World War II.

As post-war US presidents have achieved greater free trade, the world has also experienced its fastest growth in prosperity, with even the communist regimes in China and Russia eventually hopping on the open-market bandwagon.

Now, despite a deep recession, Mr. Obama cannot simply mouth support for trade and then act differently, as he has done. Trade may not be the spark for economic recovery but the raising of barriers would only dampen a recovery. That certainly was the case with the 1930 Smoot-Hawley law that raised tariffs on some 20,000 imported items.

Although the US is far from such a drastic step, Obama has so far equivocated on free trade, which only sets an example for other nations to resort to protectionism. He did little to keep Congress from putting a "buy American" provision in the giant stimulus bill. And he signed onto a measure that violates NAFTA by barring Mexican trucks in the US.

Mexico had every right to retaliate, which it did with higher tariffs on 89 American products. By some estimates, those tariffs will cost 40,000 US jobs.

The Obama administration has also raised the prospect of slapping tariffs on imports from countries that don't limit carbon emissions – "in order to protect American industries."

Protectionism comes in several forms, from "green" rules to subsidies for domestic industries to outright import bans. Many governments don't want their economic stimulus money "to go to foreigners." France has ordered its automakers to only lay off workers in their foreign plants. Britain has a "British jobs for British workers" campaign. China plans rebates for its steel exporters.

"Everybody is a bit of a sinner," admits the White House summit organizer, Michael Froman. "This is a bit of a revival meeting among sinners."

Even trade barriers that are legally consistent with World Trade Organization rules can have protectionist effects. "The danger today is of an incremental build-up of restrictions that could slowly strangle international trade," the WTO warns.

Since last November's G-20 summit – which also pledged to fight protection – 17 of those 20 countries have issued 47 policies that restrict trade, according to the World Bank. The bank also notes that it expects global trade in goods and services to drop by 6.1 percent this year, the worst performance since WWII. That will contribute to an expected 1 percent contraction in the world economy.

Despite a renewed pledge not to resort to trade-distorting steps, the G-20 must also allow the WTO to disclose the names of countries engaging in new protectionism. Such shaming by naming would at least bring a level of honesty to all the free-trade rhetoric, starting with the US.

Obama should also push to renew negotiations aimed at completing a new international trade pact – the so-called Doha round – which at least would keep up pressure for free trade.

Brazil's president (a former union leader) says the solution to the global crisis "is more free trade." That in part reflects a global hope that the US, as the world's largest market, won't close its doors to other nations' goods.